Déjà vu for NSW Harvest

Dry warm conditions have greatly helped the WA harvest ramp up, and rings true to the old saying “big crops always get bigger”. However this has placed pressure on turnaround times at upcountry sites, and even trying to get trucks at the last minute. CBH have estimated another 2.3mmt has been delivered over the last week, for a total of 5.2 mmt being received into the system. This is around 38% of expected receivals.

So far Geraldton has received 1.9mmt (+600kt over the week), this weeks deliveries were mostly wheat as canola and barley are largely done, while lupins are yet to get started. Kwinana 2mmt (+1mmt), similar to Geraldton yields have surpassed expectations, but quality continues to be inconsistent, with large pockets being monitored for sprouted grain. Albany 535kt (+350kt), high moisture and harvest bans has resulted in slow deliveries, with most loads being canola and barley. Wheat deliveries are staring to trickle in, with samples indicating sprouting. 60% of barley has been going as malt; this would be the lower compared to the East Coast. Esperance 710kt (+299kt), high moisture has slowed receivals this week, with canola mostly done and many segregation set up for wheat to cater for mixed deliveries.  

Prices fell away last week as buyers followed international price trends, but started the week firming as the halt to harvest activity and unknown quality downgrades created some further trade covering, while growers anticipate a lack of quality milling grades. The introduction of additional exotic grades to capture protein is likely in NSW.  Northern NSW bore the brunt of the rain, with Moree 218mm, Dubbo 92mm, Parkes 100mm, Deni 25mm and Culgoa 46mm. While SA and WA missed out on any heavy falls. Minimal crop remained unharvested across QLD and north of Moree, while substantial volumes were harvested across most regions prior to the rain.

The wet weather will impact on quality across central and northern NSW for unharvested crops. Minimal crop remained unharvested across QLD and north of Moree, while substantial volumes were harvested across most regions prior to the rain. It is estimated around 50% of the winter crop in NSW was harvested, with a higher percentage of the early ripening canola and barley crops making up the totals.

Regions that are greatly affected are south of Moree and East onto the Liverpool Plains, where quality is likely to be SFW1 or FED1, with higher quality unlikely. Central west crops may fair a little better, but any further events will see quality lower. Sufficient quantities of quality of milling grades in all regions of NSW and QLD are thought to be available to meet domestic and forward export commitments.

The protein spreads have widened this week, with APH/H2 +$6-$7, HPS1 +$10, this has also flowed over to lower protein. So do you hold out for more money, waiting for further price hikes in protein wheat, or take the money and run. Considering that this week’s rally was the first in nearly six months, and lower protein tonnage has been factored in the QLD balance sheet all harvest. The current APH spread to APW is high, at $103, since 1996 this spread has averaged $20-$30! You would think any further upside would be limited, but like last year the price hikes didn’t eventuate until a week or two after the heavy rain. But unlike last year the logistical bottlenecks and large trade shorts are not present. 

Time slipping away for Canola sales.

The canola chart from May this year has been going in one direction, and growers without sales on the book, it has been ugly. All the calls being received in the office has been in regard to canola pricing, and although prices have come off $130 from the high in May, anything above $500 is still a decile 8 number. Meaning over the last fifteen years it has been at this price 80% of the time. Although prices have stabilised around $500 port (VIC) this week, it could differently dip below $500, a price we have not seen since October 2010.

The sharp declines (-$40 from 7^th Nov) has been exacerbated by strong grower selling into the falling market, and with a lot of volume forward sold throughout the year, the trade wouldn’t be in a hurry sticking their neck out above the market trying to capture any extra tonnage. With the country sitting on a record crop of 2.6mmt, and with the majority of oil above 43%, crushers need less seed for oil.

International values continue to sink to new lows as Eurozone issues and re-occurring US debt reduction concerns resurface. But generally markets are lacking fresh fundamental news with agricultural markets are trading on macro scares and lower US exports. This has produced selling as US and world banks liquidate positions to shore up cash reserves. The funds continue to be aggressive sellers, unwinding their positions in soybeans. Managed money have reduced their net long position by 18,139 contracts (2.4mmt); the 10th reduction in 11 weeks. The current net long position of 10,133 contracts (1.3mmt) is the lowest since July 2010.

The bears in the global oilseed complex have been targeting ‘intended’ large acreage in South America as another reason for spot soybeans sitting at twelve month lows. However, history is against back-to-back record large yields in both Argentina and Brazil. Last year was more of exception and unlikely to be repeated in 2012

Whilst the bulls are targeting aggressive future Chinese demand, however of late Chinese preference has been for old crop Sth American beans. Cumulative Jan-Oct soybean imports are sitting at 41.5mmt, down 5.4% from last year. Export US shipments for the week ending November 17^th totaled 1.1mmt, with 79% of the week’s shipments loaded for China. Last weeks shipments were at 1.5mmt and year to date totals stand at 9.6mmt. 1st quarter exports are estimated at a 3-year low of 11mmt.

Winnipeg canola has largely followed the whims of neighboring US soybeans, however solid end-user demand continues to buy on the lows, limiting the declines. The forecasts are pointing to relatively tight canola ending stocks, which is keeping exporters and domestic crushers buying. Canadian canola crushers continue to set processing records as capacity continues to be expanded across western Canada. The latest monthly data from STATS Canada reveals crushers handled 589kt of canola in October, +6.9% from last year. Monthly crush volume has risen above year earlier levels for the 22nd consecutive month! So although it was a record crop across the Prairies this year, carryover wouldn’t as significant due to strong international demand and domestic crushers.

With the spring dryness cutting EU rapeseed yields this year, 90% of all Australian canola has been finding a home in Western Europe. While traditional importers Pakistan and Japan have taken only a cargo between them the marketing year just finished, preferring Canadian origin. So more of an influence has been Matiff rapeseed futures.

So will prices stabile around $500, probably not and growers who didn’t make forward sales earlier in the year or two weeks ago, will be need to have at least some sales made ASAP. And although outside macro related has heavily influenced the oilseed complex, short term fundamentals are not friendly either.

Clear weather allows Western Australian harvest to progress.

A dry week has allowed growers to make up for lost time, with the weekly forecast also looking kind for growers. APW values are still continuing their steady range that has been in place for the last two weeks, while canola continues to fall out of bed declining $14. Prices however have held up well considering the sharper declines on the East Coast, as growers aggressively sell into the falling cash market, whilst holding onto wheat. As expected malting barley prices have increased with more news of stained and shot/sprung grain showing up. Emerald have even started quoted malt 2 prices, but at a large discount of $30/t. CBH have acknowledged that quality concerns and are rushing falling number machines to the most effected regions, hopefully this will avoid the major issues that SA growers experienced under Viterra last year.

Last months news that Saudi Arabia had included lupins on its animal feed subsidy list, hasn’t yet set the market on fire. Prices are still gradually falling away from highs ($270 FIS) seen in June. Viterra are paying the better money ($210), with AWB and CBH not too far behind. The lower protein grades have held steady during this same period.

In their weekly harvest update CBH has estimated that 1.2mmt has so far been received into the system, 200k less then the same time last year. Geraldton has so far delivered the lion’s share at 730k, followed by Kwinana 260k, Esperance 145k and Albany 32k. Although still too early to get a good reading of wheat quality, the bulk would be ASW, with the northern regions having higher concentration of ASW/FED1.

CBH is estimating the crop, to be the second largest in history, at an estimated 12.5-13 mmt, behind only the 14.7mt record set in 2003-04. A record breaking 3 mmt crop is still possible in the Geraldton Zone. Phenomenal yields in the zone, with harvesting equipment yield monitors showing up to 7t/ha in some cases, with an average of around 3t/ha average common. In the Kwinana zone, the majority of grain received has been canola with 25% of the estimated tonnage in the bin and quality to date has been outstanding. With forecast clear weather over the next week, daily receivals will be hitting 200kt. Total receivals expected is at 5.9 mmt

In the Albany zone, CBH have estimated that 90% of receivals so far has been canola. However some regions have received a bucket load of rain of late, and wheat maturity will be delayed. Receivals that feed into the port zone should total 2.3mmt, more then double last year. Widespread rain also affected the start of Esperance harvest, with mainly canola being delivered. The early wheat has been low quality.  The estimated receivals for the zone remain at 1.4 mmt

Australian harvest slowly rolling south

Scattered rain up to 20mm through most of SA, VIC and NSW has held up/delayed harvest this week. However the next two fronts that are forecast to cross again on Wed and Sat, will cause the greatest concern for crop quality. With the delayed harvest making it difficult to get a handle on overall quality, malt barley prices have stabilised after declining over the previous four months. Over the last weekend, fine warm weather had helped crops mature, but 90% of the crop in these regions has yet to be harvested.

Fine harvest weather across the Sth QLD, Nth NSW last week will have the crop over 70% done in QLD. Harvest quality has improved with more H2 being delivered. Growers still hold substantial on farm stocks with quality variable, with yields remaining above average, some compensation for the lower prices for the ASW and lower grades.

Track bids are firmer for APH, with grower selling increasing, but buyer depth is lacking at the top end of the bids. H2 has found grower support with recent premiums over APW around $30, as growers look to extend sales.

ASW and lower grade track bids are disappointing to growers, but are supported by the domestic feed market, with delivered bids holding well given the amount of stock available.

Newcastle feed barley bids are back $9 with AWB paying $7 premium for northern sites that traditionally service any QLD shortfall, or work into the northern market on freight differentials. Border feedlots on limited interest from buyers, is bid around $190 delivered. Liverpool Plains and New England markets were void of bids as harvest approaches, with bids considered lower. Riverina feedlots have trade bids for the harvest period at $158, down $4. Delivered markets into Melbourne are arranging from $189 (Viterra) to $206 (AWB).

Malt bids continue to ease slightly harvested volumes increase. Newcastle is lower at $236, Pt Kembla $239 (highest price along the East Coast). Delivered Tamworth is bid $236, which holds a good premium over the track bids. With feed barley forward market averaging close to $230 throughout most of 2011, a lot of grain growers would have taken out forward coverage at these prices. So the trade would have got all their accumulations for the busy harvest shipping periods (Nov – Jan). So growers wouldn’t need to chase the market down any lower, and growers may sustain from the market until the trade needs to tonnage in Feb/May.

WA harvest continues to splutter through the start of harvest, with relatively cool conditions combined with more scattered wet weather over the last couple of days bringing headers back into the sheds. CBH has estimated that less than half a million tones has so far been delivered into the system, vastly below the average receivals expected for this time of year.

APW for the first time in 2011, has had a week of relative steady week, with prices $1 firm. This has broken the previous two months of weekly price declines. As expected, the higher protein grades have strengthened relative to APW2. At the end of October H1 premium was +$21, this has now increased to +$52/t. H2 premium has increased from +$18 to +$32, while the ANW1 premium has improved only +$4 to $9/t. Last months news that Saudi Arabia had included lupins on its animal feed subsidy list, hasn’t yet set the market on fire. Prices are still gradually falling away from highs ($270 FIS) seen in June. Viterra are paying the better money, with AWB and CBH not too far behind. The lower protein grades have held steady during this same period.

The week that was in International Grain Markets...

All the noise this week was attributed to the wider macroeconomic news out of Europe and the resulting risk adverse nature of market participates.  Grain futures have held within the current range over the past week, with the resulting domestic prices dominated by wide fluctuations in currency movements. News that the EU had compromised on a deal with the Greek debit crisis, spurred speculative money back into commodities. However on the news the AUD had reached its highest level against the greenback for over 8 weeks, and the CAD for 14 years! Trimming upside in cash prices. However, since late last week the dollar has declined 5c.

After the EU pushed through its debt deal last week speculative activity resumed back in the futures market, but how long will the warm and fuzzy feeling last? The US is getting hammered from all corners from strong export competition, with silos around the world bursting full. Increasingly bearish price signals (global stocks getting bigger/favourable Sth American plantings) are becoming apparent. In addition, the IGC increased global wheat carryover for 2011-12 by 9mmt to 202mmt. The largest carryover projection in a decade!

The IGC raised their global production estimate by a whopping 10 mmt to 855 mmt, but US stocks still remain historically tight. Although corn is off recent highs, historically it is still at very high levels. Recent Australian sales of 500kt of feed wheat into China and 800kt sales into the Philippines over the marketing year are testament to this.

Egypt yesterday bought 180kt of Black Sea Origin wheat with the Russian wheat still $17/t cheaper then French and $18 then Argentine offers. Although the origin wasn’t a surprise, prices were up to $3 higher then last tender held late last week and was seen as supportive for the market.  Russian all grain exports have reached 3.8mmt last month, and are forecast at a record 11.5mmt so far in the marketing year (June – October). However, Vladimir Putin has endorsed that grain tariffs will be introduced after Russia exports hit 24-25mmt, to protect domestic reserves and quell potential future food inflation. So you would expect Australian wheat to fulfill this void with their back-to-back record crops.

US winter wheat crop conditions is 13% very poor-poor (-3%), 41% fair (+4%), 41% good (0%) and 5% excellent (-1%). Texas the number three-production state is still in the midst of major drought with 38% of the crop rated very poor – poor. 78% of the US corn crop is harvested; this is +13% higher then last week and well ahead of the long-term average. The Eastern Corn Belt is still struggling with the wet weather, with Ohio only 18% complete, 37% behind the 5-year average. An improving trend for harvest will occur in some of the wettest areas of the eastern Corn Belt this week, although harvest weather will not be ideal due to cloudy and cool conditions.

Slow export news and talk that Japan (who are the largest export destination of US corn) and other traditional importers are seeking alternative grains continue to add to the negative tone. However, ideas that the market is oversold and concerns for a lower yield and tighter ending stocks for next week's USDA production update helped to support. It has been reported that grower selling has increased in the Corn Belt, but still less then normal.  With record prices before harvest cash flow isn’t an issue, with grower ideas that the market will continue to rally from here.

Slow demand from China for US soybeans plus hefty supplies of South America beans combined with good prospects in South America for next years April harvest are all factors which have added to the recent long liquidation trend from speculators. Heavy rain ranging up to 50mm was recorded in southern Brazilian growing regions over the weekend, while this weeks forecast is dry, allowing farmers back into paddocks.